1 Forces in the Organizational Environment Figure 4.1

2 The Competitive Environment A smaller environment that includes the specific organizations with which the organization interacts Includes: – rivalry among current competitors – threat of new entrants – threat of substitutes – power of suppliers – power of customers

3 Rivalry Among Current Competitors Step one: Identify the competition – Small domestic firms – Strong regional competitors – Companies exploring new markets – Overseas firms – New entries to the market Step two: How do they compete?

4 Threat of New Entrants New entrants into an industry compete with established companies By creating barriers to entry (conditions that prevent new companies from entering an industry) the threat of new entrants is less serious – Barriers to entry include government policy, capital requirements, brand identification, cost disadvantages, and distribution channels

5 Threat of Substitute Products Return

6 Power of Suppliers Suppliers provide the resources needed for production Organization are at a disadvantage if they become overly dependent on any powerful supplier – Switching costs are fixed costs buyers face if they change suppliers – Supply chain management is the process of managing the entire network of facilities and people that obtain raw materials from outside the organization, transform them into products, and distribute them to customers

7 Power of Customers Customers purchase the products or services an organization offers – Final consumers are those individuals that purchase products in their finished form – Intermediate consumers are individuals who purchase raw materials or wholesale products before selling them to final customers Customers can demand lower prices, higher quality, unique product specifications, or better service Customers are powerful if they make large purchases or if they can easily find alternative places to buy

8 Global Outsourcing Purchase of inputs from foreign suppliers or the production of inputs abroad to lower production costs and improve product quality and design

Environmental Scanning Searching and sorting through information about the environment Commonly asked questions – Who are our current competitors – Are there few or many entry barriers to our industry? – What substitutes exist for our product or service? – Is the company too dependent on powerful suppliers? – Is the company too dependent on powerful customers?

Environmental Scanning Using environmental scanning helps managers develop competitive intelligence (information that helps managers determine how to compete better) Other tools for environmental scanning – Scenario development – Forecasting – Benchmarking

Responding to the Environment Managers must respond effectively to their environment Response options can be grouped into three categories – Adapting to the environment – Influencing the environment – Select a new environment

Adapting to the Environment Coping with environmental complexity – Organizations tend to adapt by decentralizing decision making – Create buffers or utilize smoothing techniques Coping with dynamism in the environment – Organizations tend to establish more flexible structures – Create flexible work processes

Influencing your Environment Proactive responses aimed at changing the environment – Independent Action – Cooperative Action

Selecting a new environment This is referred to as strategic maneuvering – An organization’s conscious efforts to change he boundaries of its task environment There are several strategic maneuvers to choose from – Domain selection – entrance by a company into another suitable market or industry – Other options include diversification, merger/acquisition, and divestiture

15 National Culture and Global Management Management practices that are effective in one culture might be troublesome in another Managers must be sensitive to the value systems and norms of an individual’s country and behave accordingly

The Role of National Culture Norms – Unwritten rules and codes of conduct that prescribe how people should act in particular situations. Folkways—routine social conventions of everyday life Mores - norms that are considered to be central to functioning of society and to social life

17 Hofstede’s Model of National Culture Figure 4.4